Ready for reform rush

OUR SPECIAL CORRESPONDENT

New Delhi, Sept. 20: The Congress-led government has decided to go ahead with more reforms and will take a call on a proposal to hike foreign direct investment in insurance to 49 per cent from 26 per cent and a plan to allow foreign investment in pensions at the next cabinet meeting.

The proposals come hot on the heels of a controversy over opening up multi-brand retail to foreign investment, raising the price of diesel to cut subsidies and capping the number of subsidised cooking gas cylinders to six.

Prime Minister Manmohan Singh is expected to address the country on national television tomorrow in defence of the economic reforms he has taken. He is likely to argue that this will create jobs and perk up flagging growth in the economy. Foreign direct investment in insurance is currently capped at 26 per cent and not allowed at all in firms managing or running pension products.

The government wants to attract more foreign insurers and pension managers to deepen and broaden the market for these products.

According to a study by the Insurance Regulatory and Development Authority (IRDA), the sector needs a capital infusion of over $12 billion over the next five years.

The insurance amendment bill has followed a torturous path: in May, the cabinet had deferred a decision on the bill, after objections by the Mamata Banerjee-led Trinamul Congress.

Mamata had cited the views of a parliamentary standing committee, headed by BJP’s Yashwant Sinha, which suggested 26 per cent FDI limit. An attempt by the then finance minister Pranab Mukherjee to bring in the amendment bill without hiking the foreign direct investment cap was not accepted by Singh who advised that the government should wait and then increase the FDI caps at one go.

Multiple aims of insurance bill

Along with raising the foreign direct investment limit, the insurance amendment bill aims to strengthen regulations and allow foreign re-insurers to enter the Indian market as well as allow specialised insurance retailers such as Lloyd’s, which plans to set up an insurance trading floor in Mumbai similar to the Lloyd’s trading bourse in London.